Cotton — higher quality, lower surpluses

Elton Robinson, Farm Press Editorial Staff | Apr 17, 2009

Declining U.S. cotton acreage means the United States is doing its job to reduce cotton surpluses in the world, according to cotton market analysts speaking at the Ag Market Network’s April teleconference.

The only problem is that it may take another year to whittle them down to an adequate level.

According to O.A. Cleveland, professor emeritus, Mississippi State University, the Mid-South could lead the way in reducing cotton acreage this year.

“I’ve said through my career that the last bale of cotton grown in the world would be grown in the Mississippi Delta, but I’ve changed my tune. The last bale of cotton grown in the world is going to be on the High Plains of Texas. Texas is certainly the center of cotton activity in the United States. It’s also the largest quality area in the United States.”

Meanwhile, the Mid-South is looking at a reduction over last year of about 11 percent, according to USDA’s March 31 Prospective Plantings report. “Mississippi is expected to plant about 300,000 acres and Arkansas, about 520,000 acres,” Cleveland said. “Both of those states were pushing a million acres just four years ago. So it’s a substantial drop.”

Arkansas is expected to have the highest cotton acreage in the Mid-South, and the third highest in the United States behind Georgia’s 940,000 acres and Texas’ 4.7 million acres.

“Arkansas is a bit like Texas in the sense that landlords and landlords with gin interests require a good bit of cotton production. They want cotton grown.”

The Southeast is not down as much in cotton acres as the Mid-South, about 3 percent, noted Cleveland. “We’re going to have about 240,000 acres in Alabama. We used to think that Alabama was a very small cotton-producing state, but now it’s about the same as Mississippi and Louisiana in actuality. Georgia will continue to maintain a significant acreage, but they are very dry.”

Cleveland says that another big change in the cotton industry is a shifting of emphasis from price-driven demand to quality-driven demand. “International mills are concerned about quality first and foremost. Some people say it’s price, but we have to have quality.”

One region that has significantly improved its reputation for quality is Texas, which is expected to plant well over half of the U.S. crop this year.

“We are so glad we have the high quality cotton today,” said Carl Anderson, Extension economist, cotton marketing, Texas A&M University. “When I first started working for Texas A&M and the education system, our crop was known as the junk cotton of the world. We were selling low quality and high quality cotton for basically the same price.

“We’ve come a long way and I’m very proud of our producers, producer leaders, agribusiness associations and seed companies who are working to make Texas a high quality, desirable market.”

Having a desirable product could prove to be an advantage since the world is presently holding a surplus of cotton, according to Anderson. “In fact, it’s the largest supply of cotton in seven years.”

Seven years ago cotton prices had slipped to a paltry 32 cents per pound, noted Anderson. “We certainly hope the market doesn’t have to go that low, but supplies are plentiful in the United States and foreign countries as well. So users are reluctant to buy cotton and are certainly not buying very far ahead of time.”

It’s made for a bearish cotton market, notes Anderson. “We’re looking for December 2008 to trade somewhere between 50 cents and 60 cents.”

Anderson noted that USDA’s March 31 report indicating 8.8 million acres of U.S. cotton in 2009 “is 7 percent lower than last year but higher than what we anticipated.”

Anderson estimates cotton acres in Texas at between 4.7 million and 5 million acres. “Because of the dry weather here in Texas, we’re expecting lower yields and a U.S. crop close to 13 million bales.

“That means for two years in a row, we’ve been producing 10 million fewer bales annually than we did four years ago. That also means we are doing a good job of contributing to the reduction of the overall excess supply of cotton in the world. We’ve had the opportunity to plant some alternative crops and keep our grower income at high levels.”

Anderson said that USDA reported cotton exports of 403,000 bales for the week ending March 26, “which means we only have to cover about 204,000 bales per week for the rest of the marketing year to reach USDA’s projection for 12 million bales in exports.

“Another surprise was that Mexico recently stepped in and bought 120,000 bales of cotton.”

Anderson said that last year’s cotton market disruption was a clear lesson for cotton producers to think ahead. “The market started off looking pretty good in the beginning of the year. None of us knew how bad it would collapse, but anytime you know you could have a price wreck when the market’s at 80 cents to 90 cents, you better get some price insurance.”

On the future of cotton prices, Anderson said, “I think there are definitely better days ahead for cotton, although it may take another year.”